October 28, 2024 – With mortgage rates climbing to a 3-month high, housing demand in the past few weeks has gone down as the number of mortgage applications reached its recent low since July. Home sales, as such, will likely remain soft in October and November until rates start coming down again. Meanwhile, new home sales last month reached the highest level since May 2023 as new housing markets benefited from low rates in September. However, with rates back to 7% recently, sales momentum in the new housing market will likely slow in the near future. On a brighter note, consumer short-term inflation expectations in September continued to stay at the lowest level since early 2021, which at least offers hopes that rates could gradually come down in the coming months.

Inflation expectations steady for one year but increase in the long-term:  According to the latest findings from the September 2024 Survey of Consumer Expectations released by the Federal Reserve Bank of New York, median inflation expectations over the next 12 months remained unchanged at 3.0%, while the three- and five-year consumer expectations ticked up. At the three-year horizon, inflation expectations rose from 2.5% to 2.7%, and at the five-year horizon, expectations increased from 2.8% to 2.9%. The most significant increases in inflation expectations were seen among respondents with a high school education or less, which suggests that those with lower levels of education were anticipating higher overall price growth. Their more pronounced concerns about rising inflation, particularly at the three- and five-year horizons, reflected heightened uncertainty or expectations about future economic conditions, such as feelings of vulnerability toward price increases, housing affordability, and wage growth.    

New home sales increase in September: September data released last week by the US Census Bureau indicated that new single-family homes sales reached 738,000 (seasonally adjusted), marking a 4.1% increase from August 2024 – the highest rate since May 2023. On a year over year basis, new home sales rose 6.3% from 694,000 units recorded in September 2023. The surge in new home sales was likely attributed to the ease in mortgage rates we saw in September, which hit their lowest point in over a year and a half by the end of the month. On the supply side, new for-sale housing units inched up last month to 473,000 (non-seasonally adjusted) from 472,000 in August, but the months of inventory dipped slightly to 7.6 months from 7.9 months, as sales increased at a faster pace. The overall inventory level stayed elevated and remained sharply higher than the 4.2 months of supply registered for single-family homes in the resale market. The increase in new home sales in September is encouraging, but the sustainability of its upward momentum will be tested in coming months, as the recent uptick in mortgage rates will likely present challenges in the housing market.

Mortgage rates continue to rise as mortgage applications drop: Mortgage rates have climbed to the highest level in three months, according to Mortgage News Daily. The average 30-year fixed mortgage rate reached 7% as of October 28, a level not seen since early July. As a result of the rising rates, mortgage applications have been declining, hitting their lowest level in three months as both purchase and refinancing applications tipped. According to The Mortgage Bankers Association's weekly survey, for the week ending October 18th, the purchased application index dropped 6.7% on a seasonally adjusted basis when compared to the previous week, but the unadjusted purchase index was up 3% from the same week one year ago. The Refinance Index decreased 8% compared to the previous week and was 90% higher than the same week a year ago.

Jobless claims unexpectedly fall: Jobless claims decreased by 15k, falling to 227k from 242k recorded in the week prior, according to the latest data released by the Department of Labor. Despite the drop in new applications for unemployment aid last week, continuing claims hit 1.897 million in the week ending October 12th, reaching the highest level for insured unemployment since November 2021 when 1.974 million continuing claims were recorded. The elevated level of claims could be an indication that the labor market is getting tighter, and it has become harder for those currently collecting unemployment benefits to land a new job. More lights will be shed on the labor market next week, as the official October jobs report is scheduled to be released on November 1st and should provide some additional clues to the health of the jobs market.

U.S. single-family home rent prices see steady increase: U.S. single-family home rent prices went up 2.4% year over year in August, the lowest rate since last fall, according to the latest CoreLogic Single-Family Rent Index. Prices for detached rentals grew 2.3% year over year, while attached properties increased modestly by 2%. High-end rental prices grew faster, with an increase of 2.9% year over year, whereas low-end prices experienced a slight decline of 0.2%. Of the metropolitan areas surveyed, coastal metros such as Seattle and New York had the greatest increases. Despite the boom in prices in coastal metros, Los Angeles and San Diego rent prices stayed under a 2.0% year over year increase. While overall U.S. annual single-family rent growth remained below 3%, prices were still up nearly 33% compared to the beginning of the pandemic.

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